Posted In Taxes Accounting | Posted On 25, February 2020 | Posted By AB Value Team

In order to know how to maximize your deductions and deduct your donations to charities that you make, your Business should know the four types of charitable gifts that can be deducted:

  • Mileage

  • Cash

  • Gifts of property or equipment

  • Travel expenses accrued when helping a charitable organization



The 2019 IRS standard mileage rate is 14 cents, meaning you can expense 14 cents per mile when you travel to help a charitable organization. You need to make sure to keep your gas receipts and track your mileage to better know the money you've spent traveling for charitable reasons. 




Cash contributions are pretty straightforward and should be easy to track. Make sure to get a receipt slip from the non-profit for the cash contribution. As for cash contributions, the Tax Cuts and Jobs Act raised the maximum donation to 60% of your adjusted gross income.


Gifts of property or equipment


For gifts of property or equipment, the deduction depends on how much you donate. For example, if you donate equipment to a non-profit, you receive a deduction for fair market value, rather than the new value of that equipment. If you give cash or property to a charitable organization that exceeds a $250 value, you'll want the organization to recognize your gift in writing. This is essential for tax purposes. A non-cash charitable deduction of $500 requires you to fill out Form 8283. Donations to nonprofits normally do not have to be reported on a 1099 form, though. Once your charity donations starts to increase higher than this, you will want to check with a tax advisor because the IRS has some rules on how much money you can deduct. According to the IRS "In general, contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income computed without regard to net operating loss carrybacks.  Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30 percent adjusted gross income (computed without regard to net operating loss carrybacks), however."


50% rule applies to four different types of charitable organizations:

  • Public charities

  • Private operating foundations

  • Private foundations that distribute donations to private operating foundations and public charities within 2.5 months from when the contributions are received

  • Private foundations that pool contributions and eventually pay them to public charities

The 30% rule applies to private foundations that don't fall under the 50% rule. It's important to know your business's net gross income and to speak with a tax professional to maximize those deductions. 


Be sure to keep track of your donations through written records. Include when you've donated and how much money. Having records to look back at makes tax season easier, and it helps ensure you won't be subject to an audit or have legal repercussions.

Note that certain charitable donations are not tax deductible. These are just a few of them:

  • Political donations

  • Gifts to individuals

  • Gifts to for-profit schools

If you want a charity tax deduction, make sure you're donating to a charity approved by the IRS. Obviously, you won't receive a charity tax deduction if you aren't donating to an approved charity.


How much should your business give to charity?


According to a study conducted by American Express and The Chronicle of Philanthropy, small companies donate an average of 6% of their profits to charity. The tax benefit you receive will be based on how much you give and your business's revenue. You can find the detailed tax benefit rules in the IRS tax code. Again, the Tax Cuts and Jobs Act made some of these tax laws somewhat more complicated than in previous years. With tax laws always subject to legislative change, it can be difficult to stay on top of the latest adjustments. That's where bringing in a trusted tax advisor can help.

When deciding exactly how much you will give to charity, it's important to consider a variety of factors. Donating to local organizations is a worthwhile cause, but it's also important to look out for the interests of your business. Don't donate an amount that will sink your business. Be smart as well as charitable.

"If you are going to donate $1,000, and let's say you get a $330 tax savings, you're still giving the other $670 away," Adams said. "Business and personal cash flow, in my mind, has to be first. They can't compromise even though they may want to give to charity."

Adams stressed the importance of both giving to charity and looking at your personal and business cash flows. In this same light, it's best to keep detailed records of charitable donations for your tax return. Most nonprofits will give you a standard form for tax-filing purposes.

Your business isn't limited to giving money. Volunteer work offers many of the same benefits as a generous monetary gift, and it sends a strong, positive statement to customers and your business's community. This is a tremendous option for businesses trying to save money, Adams said.

However, you can only write off certain expenses, like materials and not actual labor. You can't write off your employees' time volunteering at the animal shelter, but you can write off items like mileage.


How to choose the right charity


Another concern that business owners often have is whether their money ends up in the right place. If you're going to donate money, you want to make sure it's put to good use.

It's not that difficult to find a public or private charity that aligns with your company and is known to use its money wisely. It takes some research, but your business should be able to support a charity that does good and is willing to accept your business's generosity responsibly.

"Do your homework," said Putnam-Walkerly. "Just because an organization is well known doesn't mean it's well run. There are many websites that provide a tremendous amount of information about nonprofits, such as GuideStar, Charity Navigator and the Better Business Bureau Wise Giving Alliance. You can also pick up the phone, call the organization and ask to speak to the executive director. Nonprofit leaders should be happy to talk with potential donors about their organization and their impact and should be especially interested in building relationships with local businesses."

Fusaro-Pizzo suggests picking an organization that aligns with your brand. For example, a company with beach branding should get involved with organizations that advocate for clean water or ocean life.

It's also important to keep your chosen charity informed of your plans. Most organizations have a business outreach individual you can contact and coordinate with for your donation and any resulting PR. Even though the charity is a nonprofit, you still need its permission if you want to use its branding in any press releases or announcements you make to customers. Remember that contributions and gifts over a certain monetary threshold may also require written acknowledgment from the charitable organization.


Security precautions to take


While your business might have other people's needs at heart, online scammers try to take advantage of people's generosity.

Adrien Gendre, North American CEO at Vade Secure, believes businesses or individuals that donate to charity via gift card are at risk of being scammed. He said a scam that's on the rise is people or businesses being asked to purchase gift cards from nearby stores and provide the codes to scammers posing as charities. He says to avoid donations like this where almost nothing can be tracked.

Additionally, Gendre says to look out for well-designed email and website scams. If you receive an email soliciting donations that appears to be from a legitimate source, double-check the sender's email address and accompanying website to ensure you're not being duped by a minor change to the web address.

"Go on Google, type the brand, find the website from Google, and compare the URL," Gendre said when describing how to verify a website's legitimacy. "That's the easiest trick." Compare the two websites and URLs side by side to determine if the email sent to you is fake.

It's also important to understand the complexity of some scams. When it comes to email cons, studies suggest that scammers select days of the week to send phishing emails based on when people's inboxes are busiest. Don't fall into a trap because you're hurried on a busy day.

According to Gendre, the No. 1 red flag of a scam is someone trying to rush you into donating. There's never a reason why you or your business would need to quickly donate. If someone tries to pressure you to donate over email or the phone, it's a good idea to take a step back and question the legitimacy of the organization.

Before doling out cash donations (or donations of any kind), make sure the charity is legitimate. You want to work with legitimate nonprofit organizations rather than hastily donating to an organization that might not even exist. 




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AB Value Team

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